David Lazar: “With all of my investment money in various mutual funds, I’m not what you would call a ‘player’ in terms of moving my money around and looking for ‘quick-hitters’ in the stock market. I am, however, a successful gambler. I supplement my income by playing poker and betting baseball for profit. As a result, I have taken some interest in gaming stocks, namely Mirage Resorts, the Steve Wynn company that owns and operates such mega-resorts as The Mirage, The Golden Nugget and Bellagio. I have personally stayed at these properties and as a person who is admittedly picky about customer service, I find them to be at least one order of magnitude better than any of the other hotel/casinos in Vegas or Atlantic City.
“The proliferation of legalized gambling and the huge wave of recent construction of billion dollar resorts in Vegas has caused the market to be flooded and profits have gone down. This has caused a major downturn in the stock price of Mirage Resorts which has a 52 week spread of 12-32 and right now is at about 13. The 10-year spread on gaming stocks shows them to be very cyclical with the current downward trend likely to reverse itself sometime between now and the next 2 years.
“I know there is a question in here somewhere. Oh yeah. With what has been a traditionally cyclical market at a low point, wouldn’t this be an attractive investment? If so, why have the so-called investment gurus not endorsed gaming stocks? As a Darwinistic survival-of-the-fittest phenomenon takes place (it’s already begun), I feel very strongly that Mirage Resorts will outlast the competition and emerge as the strongest player. This will cause the stock to rebound from 13 to well over 20 in the not too distant future, allowing for a modest score prior to the cyclical effect precipitating a return to its current price.
“If you don’t have a strong opinion on gaming stocks in particular, perhaps you can comment on cyclical stocks in general.”
I don’t much like gambling stocks, because the underlying enterprise is — to my mind — neither physically, fiscally nor mentally a terribly healthy form of recreation. I’d rather be a part of building semi-conductor plants or ski lifts.
But I’d be the first to argue — and have — that it is not logical to allow a bias like that to limit your investment options. Maybe you wouldn’t participate in an new issue of a gambling company’s stock or bonds, on principle, but buying them in the secondary market has such an infinitesimal effect, it’s silly even to think about it.
This, of course, has nothing whatever to do with your question.
I think you’re smart to have most of your investment money in mutual funds, although as I noted yesterday, I now have an adjunct site — www.personalfund.com — that may help you make even sharper fund choices going forward. (Please check it out — and register! We will be enhancing it in a variety of ways, and want you with us on our journey toward ever-more-effective investing.)
And I think it is perfectly reasonable that, in addition to your mutual fund investing, you would take a well-considered position in something you know, like the gambling stocks. I do believe in buying out-of-favor gems (sometimes, even out-of-favor dogs), so why not put a little money in at 13, planning to put in more at 7 or 8, in case we get some rough markets. (Even year-end tax-selling could depress the stock a little if it is widely held in taxable accounts.) If it never goes down from here and you don’t get more at a lower price — bravo! You caught the bottom! (Albeit, not for as many shares as you might have bought.) If it DOES drop significantly from here — bravo! You lost less than you might have, and got a chance to buy more shares even cheaper!
There is obviously nothing very clever in this. And you certainly shouldn’t get TOO sucked into it, if the stock kept dropping. But I think this is a reasonable thing to do, and something that will interest and engage you — and that alone has value.
As to why the gurus don’t recommend cyclical stocks when they’re low, well, to the extent you’re right about that, I guess it’s because patience is not very exciting. If you’re writing a newsletter, you want to try to recommend a group just as you think it’s beginning to take off (or, failing that, when everyone IS excited about it). That this sort of pinpoint timing is all but impossible gives pause to only a few.
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We're not trying to outsmart the smart guys. We're trying to sell bonds to the dumb guys.~alleged remark of the head of a Wall Street mortgage-bond group
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